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Calbee,
2229.TO 1.2820512820512822%Calbee Inc.Japan: TokyoJPY5530
701.2820512820512822%
/Date(1438372800000-0500)/
Volume (Delayed 20m)
:
563500
P/E Ratio
52.397195376160695Market Cap
739171856718.75
Dividend Yield
1.193490054249548% Rev. per Employee
63891300More quote details and news »2229.TOinYour ValueYour ChangeShort position
Japan's largest potato-chip maker, made an inauspicious public debut on the day of Japan's devastating Tohoku quake in March 2011, and yet the stock has more than tripled since then, to about a $3 billion market value. In that time, one of the country's main benchmark indexes, the Topix, has tumbled 19.4%.

Investors could get another chance to participate in the stock's gains following an embarrassing recall announcement last week. Calbee said Tuesday that glass might have gotten into some bags of its chips because of an accident at a factory. The news sent the stock (ticker: 2229.Japan) down 8%, to 6,680 yen, by the close of trading last week, its lowest price in six weeks. But, barring some other disclosure, there's little reason to think the stock won't rebound.

Calbee is Japan's Frito-Lay. In fact, Frito-Lay's parent,
PepsiCoPEP -0.2897650833074614%PepsiCo Inc.U.S.: NYSEUSD96.35
-0.28-0.2897650833074614%
/Date(1438376429935-0500)/
Volume (Delayed 15m)
:
4811412AFTER HOURSUSD96.35
%
Volume (Delayed 15m)
:
238176
P/E Ratio
22.25173210161663Market Cap
141537477354.442
Dividend Yield
2.9164504411001557% Rev. per Employee
240974More quote details and news »PEPinYour ValueYour ChangeShort position
(PEP), owns 20% of Calbee, making it an equity affiliate of the U.S. snack-food and soft-drink behemoth, and in 2009 Frito-Lay Japan itself became a Calbee subsidiary. From its IPO, the stock has ridden the popularity of its snacks, including shrimp chips and snow-pea crisps, to a succession of new highs. But is it time for Calbee holders to walk away with their profits? No, for a variety of reasons.

Calbee's initial offering was priced so cheaply (less than five times its enterprise value divided by Ebitda, or earnings before interest, taxes, depreciation, and amortization) in a weak market that the stock still has ample room to run.

The 63-year-old company's founding Matsuo family remains its biggest shareholder, but has ceded its management to professionals who have run Japanese units of big multinationals. The goal is to improve profitability by restructuring domestic costs to boost margins, to increase its share of Japan's snack-food market to 60% from 50%, and to push overseas. The company has made headway. Operating margins have risen over the past few years, from the low single digits to around 8.5%, still well below the roughly 15% that large global packaged-food operators boast.

Management is targeting 10% margins by 2014 as it streamlines production; thereafter, 15% is the objective. To meet this, Calbee plans to use its PepsiCo relationship to begin distributing products in the U.S., and to gain access to China's market via a recent joint-venture pact with Chinese beverage and instant-noodle maker
Tingyi
(322.Hong Kong).

Assuming 200 billion yen ($2.5 billion) in annual revenue by March 2015 with a 10.5% operating profit margin, attributable both to higher sales and better plant utilization, yields ¥21 billion in Ebit (earnings before interest and taxes), putting the stock at an enterprise value/Ebit multiple of around 10 times, or 1.0 times EV/sales. That's cheap versus Western packaged food and beverage companies' 12 times EV/Ebit, or 1.7 times EV/Sales. At these multiples Calbee shares would be worth ¥7,800, 17% above last week's level.

So, assuming that last week's mishap is an isolated event, the stock should resume its upward track.

Asian Bounce

Hong Kong, India and Korea enjoyed their best week since mid-September.